Receiving more than $1,000 from a vendor could be considered unrelated business income.
We currently have our food service sell dinner for our congregation before services on Wednesday nights. We only have this option at one of our campuses. We’re wondering if we could allow food trucks to come to our other campuses to provide food before service. This would be for the convenience of our congregants, but could it be a problem to have a for-profit business making money on our nonprofit exempt property?
This is a practical question that comes up from time to time. The place to start is with the constitution and/or bylaws of your church. I’m going assume that your main purpose is something like, “to share the good news of Jesus, to bring religious education to our children, to reach our community.” Those may not be your exact words but most churches have the gist of it.
Having food trucks periodically serve your congregants doesn’t meaningful impair or overshadow the religious purpose that is the basis of your exempt purpose. Rather, as you say, this is a service provided “for the convenience” of your congregants— a convenience that may make it possible for members and visitors to attend given the demands of today’s fast-paced society.
You would encounter a problem if you became “The First Church of Food Trucks.” If your purpose became “food trucks for profit for the city,” then you would no longer be a nonprofit entity, but a for-profit business.
It would be important to know if your church is receiving rental fees or a percentage of the sales. If so, there could be concerns about receiving unrelated business income. Keep in mind that if you receive more than $1,000 from any one vendor, this could be considered unrelated business taxable income (UBTI).
UBTI can be a tricky and complex topic. For a professional’s insights, we reached out to CPA and tax attorney Ted Batson. Here is what he had to say:
If the church is receiving a fee from the food truck operators, then the analysis must consider whether this has become an unrelated business activity. I think that the real property rental exception could come into play so long as the church isn’t providing substantial services—such as utilities, bathrooms, and security. But even then, since this activity occurs at the same time and place as a church function, the exception for trade or business services provided as a convenience for our members should preclude any amount you receive from being UBTI. This is the same exception we use to argue that a church’s café that operates around church services doesn’t generate UBTI.
This scenario could conceivably create a more heightened degree of concern about the church’s property tax exemption if it is receiving a rental fee, percentage of sales, or both. But even then, I suspect that a conversation with the county property tax authority about the occasional, transient use of the property by the food trucks—coupled with the food trucks serving food during church events—would result in no change to the property tax status.
If the church isn’t receiving any remuneration, then I would say that having food trucks on the property is comparable to catering a meal. Under this condition, there would be no UBTI because the church isn’t receiving remuneration. I think in most states the transient use of the church property (and perhaps utilities) during these limited time periods that are attached to church functions should not infringe on the church’s property tax exemption either.
I would like to add one other thought—and a caution: If anyone on your church staff has a personal or family interest in the food trucks, they should disclose that information. That person cannot take part in deciding what trucks will sell food. That would be a conflict of interest.
To gain a better understanding of UBTI, I encourage to you explore these articles and books from Church Law & Tax:
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